By Oxford Business Group
Rivalry in Oman’s busy telecommunications sector is heating up as the two main service providers look to increase subscriber numbers in the fixed line, mobile phone and internet markets while also working to strengthen their capital positions to support further expansion.
Competition between the state-controlled Oman Telecommunications Company (Omantel) and the Nawras, a subsidiary of Qatar Telecommunications, has increased since the latter started providing fixed-line services in 2008, three years after it began mobile operations.
By offering an alternative to the former monopoly holder in the declining fixed-line market, Nawras, has positioned itself to compete with Omantel in more healthy telecoms segments.
According to figures released by the National Economy Ministry in early October, there was a 5.6 percent decline year-on-year in the number of fixed lines in service as at the end of July. This compares to the 4.5 million mobile phone subscribers registered between the two companies in the same period, a 12.3 percent increase over 2009 that has led to a market penetration rate of around 150 percent.
While the growth rates suggest Omanis are nowhere near ending their love affair with mobile phones, there are only so many subscribers to go around and with just two service providers, the customer pool in a nation with a population of 3.5 million is limited.
In order to maintain and increase revenue flows, both players in the market are working to boost their product ranges, with Nawras moving to expand the connectivity for its broadband services, aiming to provide coverage to more than 80 percent of Omanis by the middle of 2011.
To counter this, Omantel is stepping up its investments in its own broadband infrastructure, as well as offering a wider range of fixed-line broadband and mobile internet services.
With estimates putting total the broadband penetration rate in Oman at less than 3 percent, this is one segment where both companies have room to move and grow.
Nawras may be edging closer to Omantel in battle for bragging rights, though in some key areas it still has some way to go. At the end of the second quarter of the year, Nawras signed up its two millionth subscriber, after having 1.7 million registered clients at the close of the first half of 2009. According to financial statements issued in mid-August, the company posted revenue of $237 million, an increase of 14.9 percent year on year, while earnings before interest, taxes, depreciation and amortization also showed a strong improvement, rising by 43.3 percent $133 million.
In contrast, Omantel saw its net profits and earnings ease for the opening half of 2010, the fall being attributed to sharply higher operating costs and the increased competition from its rival. Omantel’s profits for the first half were down 16 percent to $159 million, while operational expenses rose to $391 million, a 25 percent jump. The company’s total revenue for the period for the half was still up, $569.4 million compared to $517.5 million a year earlier.
While Omantel may blame its competitor for taking a bite out of its earnings, Nawras could counter that its rival’s solid strength and sound returns on shares could be weakening demand for the number two service provider’s initial public offering (IPO).
Nawras has been forced to extend the deadline for its offering, which was scheduled to close on October 14 after the retail portion of the IPO met with only limited interest – media reports said that bids for just 5 percent or 9 million shares had been received. Against this, institutional investors sought to snap up the 30 percent of the 260 million shares – representing a 40 percent stake in the firm valued at $608 million – that had been put on offer.
Some analysts suggested that the method of conducting the IPO, that of book building, may have made some retail investors wary, something the company itself apparently acknowledged when announcing the extension on October 12.
“Given this is the first time book building was used in Oman and to ensure all investors have sufficient time to complete and submit their applications, Nawras had consulted with the Capital Market Authority (CMA) for an extension to the offering period and the CMA has granted a one week extension,” the statement read.
However, some analysts also believe that the pricing of Nawras’ shares at between $1.83 and $2.35 per share for the IPO may have discouraged some potential buyers as the ticket value was around 11 times the firm’s price to earnings. This compared to Omantel’s trading ratio of around eight times, making it a more appealing product.
Appealing or not, there now seems to be very little between the two rivals in terms of services on offer or the numbers of subscribers they are offering them to. With the battlefield shrinking, both will probably look to service pricing and product range as the best way to woo customers, who in turn should benefit from better, faster and cheaper telecommunications as a result.
